XIPHO DEVELOPMENT COMPANY LIMITED v. ST. CHARE CORPORATION LIMITED AND OTHERS

IN THE COURT OF APPEAL

1997, No. 168

(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is the plaintiff's appeal from orders of Wong, J. made on 10 July 1997. The judge by his orders granted the defendants unconditional leave to defend the proceedings against them. He thereby reversed the decision of the master who had given summary judgment for the plaintiff under the provisions of Order 14 of the Rules of the High Court.

The background

2. The plaintiff is the landlord of units 1202-6, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong of which St. Chare Corporation Limited was the tenant. The defendants are licensees of the premises under a licence created by an instrument described as a "Guarantee" and made on 18 October 1994 (the tenant held the premises under a tenancy agreement made four days earlier, on 14 October 1994).

3. By the Guarantee, the landlord consented to the use and occupation of the premises by the licensees. The consent, and the provisions of the Guarantee in consideration for which that consent was given, are set out in the first three clauses of the Guarantee. These read as follows :

"1. The Landlord hereby consents to the use and occupation of the said Premises by the Licensee(s) whether alone or jointly with the Tenant and declares that the Licensee(s) shall while in such use or occupation enjoy all rights and privileges granted to the Tenant by the said Tenancy Agreement.

2. The Tenant and the Licensee(s) agree and confirm that they will jointly and severally observe and perform all the terms and conditions of the said Tenancy Agreement and that if there shall be any breach thereof by the Licensee(s), then without prejudice to any rights which may have accrued to the Landlord by reason of any antecedent breach, the Licensee(s) shall forthwith vacate the said Premises and the Tenant shall no longer allow or permit the Licensee(s) to remain in the said Premises or any part thereof.

3. The Tenant and the Licensee(s) jointly and severally warrant and guarantee that the Tenant shall pay all the rent and perform and observe all the terms and conditions of the said Tenancy Agreement."

4. For the sake of completeness, I should mention two further clauses in the Guarantee which were referred to in argument, clause 4 and clause 6, although nothing really turns on them. These read as follows :

"4. The Tenant and the Licensee(s) do hereby expressly acknowledge declare and confirm that all the chattels furniture machines plants equipments and any other articles in on or at the said Premises belonging to the Tenant or to the Licensee(s) or any of them can be distressed or distrained by the Landlord for non-payment of rent or other charges payable by the Tenant under the said Tenancy Agreement and execution can be levied upon the same.

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6. The Tenant and the Licensee(s) do hereby jointly and severally indemnify the Landlord and keep the Landlord indemnified against any loss damages demands suits actions proceedings reasonable costs and expenses arising out of or directly or indirectly connected with the use and occupation of the said Premises by the Licensee(s) or any of them."

5. The tenant having failed to pay rent due under the tenancy agreement, the plaintiff now sues the defendants as guarantors.

The issues

6. The issues raised in the proceedings were summarised by the judge as follows :

"The issue is whether D2-D7 were responsible for the defaults of D1 [the tenant] to pay rent and other charges and if so whether the liability was limited to the period while they were in use and occupation or for the entire duration of the tenancy agreement."

The judgment

7. The judge thought it was arguable whether D2-D7 were responsible for D1's failure to pay rent and whether they were so liable even after they had ceased (as they had) use and occupation of the premises. His view was that there were issues of fact as to the intention of the parties to be determined in a trial. Accordingly the judge gave the defendants unconditional leave to defend the proceedings against them.

Was the judge right?

8. For my part, I do not think the judge was right. The issues raised in the proceedings were simple issues concerning the true construction of the Guarantee. These required no more than an examination of the provisions of the Guarantee. There were no "issues of fact as to the intention of the parties" which needed to be investigated. Evidence of the intention of the parties is not admissible upon questions of construction.

9. That does not mean that the judge was necessarily wrong to give the defendants unconditional leave to defend. Some questions of construction are too complex to be decided on an application for summary judgment. But here, the only real question of construction was a comparatively short and simple question, and there is every good reason why a judge should be prepared to decide such a question on such an application. Before us, the parties were, I think, content to accept that that was so and to allow this appeal to proceed on the footing that, in all the circumstances, it was open to this court to consider the question of construction for itself and to decide whether it was the plaintiff, or the defendants, who were right upon the issues which the judge had identified.

The true construction of the Guarantee

10. I therefore return to the terms of the Guarantee. It will be recalled that, by clause 1, the rights and privileges to be enjoyed by the licensees were only to be enjoyed by them while in use or occupation of the premises. This seems to me to be no more than common sense. The licensees would not need or want to enjoy such rights and privileges during any period when they were not in use or occupation. It will also be recalled that, by clause 6, the indemnity given to the landlord extended only to matters arising out of or directly or indirectly connected with the use and occupation of the premises by the licensees. This, too, is no more than common sense. But it is quite clear that, where appropriate, the draftsman was ready and able to specify whatever limitation or restriction, relating to the licensees' use and occupation, was required upon the rights granted to or the obligations undertaken by the licensees.

11. In clause 3, however, no such limitation or restriction is to be found. Clause 3, under which the licensees guarantee the payment by the tenant of the rent, and accordingly become liable to pay the rent themselves (or, at any rate, damages equivalent to the rent if it remained unpaid) does not contain any such words of restriction or limitation. It does not, in particular, restrict or limit the licensees' liability for rent only to rent for the period or periods of the licensees' use and occupation and for no other period. (Questions of some difficulty might arise if the licensees went into occupation and out of it again from time to time, as the licensees would be entitled to do.)

12. It was suggested in the course of the argument that a term might be implied to the effect that the obligation on the part of the licensees to guarantee the rent should extend only to such periods; implied, it is said, by way of necessary implication from the other terms of the Guarantee dealing with the obligations of the licensee while in use or occupation. But why? It is not easy to arrive at the conclusion that both the landlord and the licensees would, if the point had been put to them when the Guarantee was made, have answered that of course the obligation of the licensees to guarantee the rent should extend only to those periods when the licensees were in fact in use or occupation of the premises.

13. In my judgment, it would be impermissible to make any such implication here. The fact of the matter is that clause 3 is expressed without any limitation or restriction and unless some limitation or restriction is to be implied into the words used by the draftsman, the obligation of the licensees does extend during the whole of the period of the tenancy agreement.

14. I find nothing odd in this. What was really happening was that the licensees were purchasing the right to use and occupy the premises, a right which they would otherwise not have had, and were prepared to submit, as part of the consideration for the landlord's agreeing to the licence, to give a guarantee of payment of the rent during the term of the tenancy. There is no need to impute to the parties any intention to restrict or limit the obligation which, in perfectly clear words, is contained in clause 3.

Conclusion

15. For these reasons, I would decide the question of construction which is raised in this case in favour of the landlord. This is the second issue identified by the judge. The first issue mentioned by the judge does not seem to me to raise any arguable point in favour of the defendants. Whenever a guarantor undertakes to pay rent (whether he does so at the same time as the tenancy agreement is made or at some subsequent time) he undertakes a primary obligation to pay to the landlord a sum equivalent to the unpaid rent, or a secondary obligation (if he fails to do so) to pay damages to the landlord for breach of his contract to do so. There is, I think, no difficulty about any of this and so the only real issue in the present case concerns the question of construction of clause 3 with which I have already dealt.

16. Accordingly, I would allow this appeal and restore the orders of the master whereby he gave judgment for the plaintiff.

Keith J.:

17. I agree that the appeal should be allowed for the reasons given by Godfrey J.A., and that the order made by the master in the two actions should be restored. I add only a few words of my own because we are differing from the view taken by the judge. The judge took the view that the proper construction of the two guarantees was dependent on the determination of issues of fact as to the intention of the parties. Since those issues of fact could not be determined without a trial of the actions, he gave the relevant Defendants unconditional leave to defend the actions. For my part, I do not think that the proper construction of the guarantees was dependent on the determination of any disputed issues of fact. I accept that the factual background against which the guarantees were made is a material consideration, but there was no disputed issue as to what the factual background was. Since the parties could not have given evidence as to what their intention had been, the construction of the guarantees was to be determined by reference only to the undisputed factual background and the language which the parties had chosen to use in the guarantees. That could be determined without a trial of the actions.

Nazareth V-P:

18. I also agree with the construction that my Lord, Godfrey JA, favours. For that reason the appeal must be allowed. I will only add this.

19. The plaintiff has clearly relied upon clauses 2 and 3. Mr Ng submits that those clauses are ambiguous because clause 1, in conferring rights and privileges upon the licensees (i.e. the same as those granted to the tenant) restricted them to the time the licensees were in occupation. He contrasts that to the absence of any such restriction in clause 2. I do not see any ambiguity arising from that; on the contrary, the presence of this restriction in clause 1 and its sharply contrasting absence in the immediately succeeding clause 2 suggests to me that that was quite deliberate and intentional.

20. Mr Ng seeks also to rely on clause 6 - the indemnity clause - which confers the indemnity, as in clause 1, by reference to costs and expenses arising directly or indirectly out of the use and occupation of the premises by the licensees. But it has to be said first, that the plaintiff did not rely in its statement of claim on clause 6 and second, that it is difficult to see how this provision cuts back the express effect of clauses 2 and 3.

21. I also agree that the order proposed by Godfrey JA should be made. The appeal is accordingly allowed, the judge's order set aside and the master's order restored. Thus, the appellant/plaintiff will have its costs before the master. There will in addition be an order that it is to have its costs before us and before the judge below.